Draghi calls for EU ‘vision’

Mario Draghi, president of the European Central Bank, challenged Europe’s leaders to prepare a 10-year vision for the euro, a tacit criticism of efforts thus far by the EU to create a fiscal union to accompany their single currency.

Urging a revival of efforts in the 1990s, when he was head of the Italian treasury and the foundations were laid for the launch of monetary union in 1999, Draghi’s call hinted at ECB frustration over the loss of political momentum behind economic integration.

While European leaders last year created a €500bn eurozone rescue system, rigid budget co-ordination rules and a bureaucratic infrastructure in Brussels to manage the currency union, those integration efforts have stalled amid growing popular anger over austerity measures that have accompanied the new institutions and rules.

Voters in Greece and France are expected to cast ballots this weekend rejecting leaders and parties who helped implement the reforms.

Still, Draghi urged leaders to regain the integration initiative. “Collectively, we have to specify a path for the euro – how we see ourselves in 10 years from now,” Draghi said in Barcelona, Spain, where the ECB’s governing council met yesterday and decided to keep its main interest rate unchanged at 1 per cent.

His call for a vision is not likely to be warmly received in Brussels, where officials have repeatedly complained that markets and outside critics have failed to give leaders credit for institutional changes that would have been unthinkable before the crisis began.

“There has been more done in the last two years than in the previous 20 years in terms of European integration,” one EU official said.

Moreover, though Draghi repeated his call for more growth-oriented policies to be adopted by political leaders, he played down the prospects of imminent ECB action to boost growth, sending no clear signal that an interest-rate cut was likely in coming months.

For the first time, however, Draghi set out in detail how a “growth compact” could combat record levels of joblessness across the 17-country eurozone – without contradicting its drive for fiscal austerity.

In barbed criticism of eurozone leaders’ efforts so far, Mr Draghi complained about the ineffectiveness of the European Financial Stability Facility, Europe’s soon-to-expire bailout fund, which was supposed to act as a “firewall” but which the ECB sees as facing severe operational constraints.

Markets have repeatedly questioned if the EFSF or its €500bn successor, the European Stability Mechanism, would be able to rescue larger, at-risk eurozone economies, such as Spain and Italy. Their borrowing rates have recently risen to near unsustainable levels.

While Draghi paid tribute to Spain’s reform, Madrid is being pushed privately by the ECB to clarify steps needed to strengthen its banking system and restore the country’s credibility in the eyes of financial markets. Draghi also said “several governments need to be more ambitious” in correcting fiscal, financial and structural deficiencies.

Draghi’s ideas for a “growth compact” included further structural reforms across the eurozone to boost competitiveness and complete the single market. He urged labour reforms that increased flexibility and mobility – but also improved the position of younger workers relative to older counterparts. Such steps should be backed by job-creating investment initiatives using the European Investment Bank and better use of EU development funding, he said.